These days, freelancing is more common than it’s ever been.
In fact, 50% of all US workers are on their way to becoming “remote workers” by next year (2020).
While freelancing comes with a wide range of benefits to enjoy, including more control over your schedule, and the opportunity to work on projects you’re passionate about, it has its challenges too. The lack of a predictable monthly income can cause a lot of stress for most people. After all, even if you lose clients and opportunities, you’ll still have bills to pay.
Here are some basic budgeting tips that could help to keep your head above water when you start freelancing for the first time.
1. Understand your Money
The first step in having a successful budget is making sure that you understand how much money you have coming in and going out. On average, how much can you expect to get from your clients each month? More importantly, which of your customers are going to pay your bills on time, and which ones will you need to chase up for a bit longer?
Figuring out what’s likely to happen with your monthly finances will make it easier to predict your cash flow. Ultimately, you can’t control your customers, but you can give yourself a basic idea of how much money you can expect to earn, and how much you may need to spend.
2. Make Savings a Priority
Many people start budgeting with the 50/30/20 strategy. This strategy involves putting 30% of their cash into the “wants” that they have right now, and 20% away to emergency funds and savings. However, as a freelancer, it may be worth putting more focus on your savings strategies. You’ll never know when something could go wrong with your earning potential, so it’s a good idea to have extra money put aside, just in case.
Ideally, you’ll want to have enough money in your savings account to get you through the droughts that happen when you’re setting up your business. If you have a particularly good month, don’t spend your extra earnings all at once – put them aside for a rainy day.
3. Reduce Expenses Wherever you Can
Being successful as a freelancer isn’t just about looking for as many ways to make money as possible. You’ll also need to track down ways that you can slow the flow of money going out of your company too. Rather than just shrugging and assuming that everything you buy is an essential, make sure that you compare your costs.
For instance, if you’re taking out a loan so you can access a new business opportunity, search online to see if you can get a lower interest rate from a different provider. If you’re getting insurance for your company, check who can give you the best deals. Remember to check your expense regularly too, to see whether switching to another provider can save you some cash in the long-term.
4. Set a Salary
Budgeting is a lot easier if you think of your freelance income as a business expense and keep it separate from your personal accounts. Take a look at how much money you have coming in each month, how much you need to set aside for everyday expenses and taxes, and how much you can afford to pay yourself.
Try not to go over the top with your salary straight away. Although it’s nice to imagine yourself earning a fortune from your venture, the truth is that most freelancers don’t make a lot of cash, to begin with. Start small, and you can always work your way up and give yourself extra bonuses in the future if business starts to get a lot better.
5. Plan for the Worst
You’ll need a lot of courage and hope to start a freelance business. Ultimately, although it sounds like fun at first, it really means giving up all kinds of security that you might get from a standard job. Staying positive is crucial, but you’ll also need to plan for the worst. Once you have a handle on your budget, set up a plan for what you’re going to do if a time comes where you’re no longer earning any money. Can you have an emergency account in place that you draw on while you’re looking for another job?
Remember to save extra cash aside for your retirement too. Even if your business does last until retirement age, you won’t be saving with a standard employer retirement account. Don’t forget to invest in your future.